Australia: Can a landlord watch a tenant refurbish a premises and then decide not to grant the lease?

We previously reported about this case in the Tribunal where an estoppel was granted ordering the landlord to execute a lease. Even though no commencement date was agreed, the landlord had agreed to grant a lease and provided draft documents to the tenant. The tenant promptly executed these and began renovating the premises. The landlord did not indicate to the tenant that they did not intend to execute the lease, and watched the tenant spend money renovating the premises. Both parties have appealed the decision.

Can a landlord watch a tenant refurbish a premises and then decide not to grant the lease?

Risi Pty Ltd v Pin Oak Holdings Pty td [2017] VSCA 317

The Tribunal ordered the landlord to sign the lease – this would tie up the property for 13 years. The landlord appealed to the Supreme Court of Victoria, and argued first, that there were no grounds to find an estoppel, and second, that even if there were, compensation would be an adequate remedy for the tenant, rather than the grant of the lease (the compensation was the tenant's cost of the works). The Supreme Court found that there were grounds for an estoppel, but the circumstances did not warrant an order for the landlord to sign the lease. The Supreme Court considered that compensation would be an adequate remedy and awarded damages to the tenant of around $115,000.

Both parties appealed, the landlord again arguing that there were no grounds for an estoppel, the tenant arguing that compensation was inadequate, and that the landlord should sign the lease.

The key items needed to obtain an estoppel are:

  1. The landlord, by its actions or statements, represented to the tenant that it would grant the lease;
  2. This representation induced the tenant to act to its detriment in reliance of the representation, and undertake the renovations; and
  3. The landlord was aware of the tenant's reliance on its representation, and did not stop tenant from spending that money.

The landlord always disputed that it knew the tenant was undertaking the works.

The landlord ran its business from an office above the retail premises. The tenant's works were undertaken over a 2 week period. The Tribunal found that the landlord must have known about the works because the landlord was present on-site at the office above the premises.

This finding by the Tribunal was disputed by the landlord in both appeals, however, as it is a finding of fact, Courts of appeal have limited scope to overturn the Tribunal's finding of fact – they can only look at the evidence and see whether it was open for the Tribunal to make that finding. The Supreme Court here found that it was not open for the Tribunal to find that the premises were closed for 6 months – there was no evidence of this. The restaurant being closed for six months was a key part of the Tribunal's reasoning in finding that the landlord must have known the tenant was renovating the premises. There were still grounds for finding that the landlord knew about the works, but a key part of the Tribunal's reasoning was invalid.

There was still enough to award an estoppel – the landlord could not deny that it had agreed to grant the lease. However, Courts have discretion about what orders to make as a result of an estoppel. The Court is required to consider all the circumstances of the case when exercising that discretion.

The tenant argued that if it had been told that the lease was not going to be granted, it would have found another premises and invested money building a business there. The tenant argued that compensation was not an adequate remedy because it had lost opportunity.

The Supreme Court found that the Tribunal's order that the landlord grant the lease was based on the landlord knowing that the restaurant was closed for a considerable period of time and that the tenant lost opportunity to invest time and money in alternate location. As the finding of the restaurant being closed was in doubt, and considering the real opportunities that were still available to the tenant, the Supreme Court found compensation was an adequate remedy in the circumstances.

The Court of Appeal agreed with the Supreme Court.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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